MultiView LOGIC Operations Support V7.0
Table of contents
Table of contents 1
Purpose of this manual 2
Definitions 3
ABC analysis 7
INQ11 - ABC analysis 10
Network flow and areas 11
INQ12 - Network flow Event Summary 12
Exceptional quantity threshold level 13
Forecasting for stock parameters and contracts 16
Planning 18
Multi-store versus principal stores configuration 19
Various costs 21
Hierarchy 22
Order policies 23
Reorder point method ROP 24
Economic order quantity EOQ 26
Consolidation of orderlines 28
Fixed order cycle method FOC 29
ROP versus FOC policy 31
MIN MAX policy 33
Spare parts 34
Errors, logical aspects and User Definitions 35
Running a program 36
INX01 - Supply Statistics 37
INX02 - Single Demand Statistics 38
INX03 - Stock Consumption Statistics 39
INX04 - Customer Sales Statistics 40
INX05 - Forecasting 41
INX06 - Consolidation 42
INX07 - Reorder Parameters 43
INX08 - Fixed Order Cycle FOC 44
INU11 - FOC Scheduler 45
Purpose of this manual
When the general stores configuration, supply and distribution networks have been defined, the majority of reorder problems can be solved automatically by means of computer programs, which use generally available statistical information.
This manual aims to provide information about business processes of inventory management, in order to run programs, analysis and reports, calculate parameters and provide logistic operations and decision support. Only after proper setup, can programs, analysis and reports be run. The working of the programs can be modified by constants and tuning factors defined in the setup.
This manual contains the program descriptions related to optimal reordering and stockholding of inventory for production or simulation.
INX01 - Supply statistics
INX02 - Single demand statistics
INX03 - Consumption statistics
INX04 - Client sales statistics
INX05 - Hierarchical consolidation
INX06 - Forecasting
INX07 - EOQ/ROP parameters
INX08 - Fixed order cycle
In addition to logistic parameter calculation, the following item statistics are recorded.
First/last customer order date
The total number and quantity of customer orders.
Quantity per issue and cumulative distribution
The average normal quantity per issue and deviation
Average daily issue quantity and deviation
Up/down year trend signal
Seasonal pattern signal
Lumpiness signal
Last 12 months total number of customer orders.
Last 12 months total quantity demanded.
Last 12 months turnover value.
Last 12 months number of backorders.
ABC Classification item by number of customer orders
ABC Classification item by turnover value
ABC Classification item by turnover profit
Exception threshold level
Stock-out dates and periods
Lead time distribution
Average weighted lead time and deviation
ABC Classification suppliers by order frequency and value
ABC Classification customers by order frequency and value
Definitions
The logistics inventory management system LOGIC aims to provide an optimal logistics of demanded materials by getting
1. " the right item in the requested quantity of the required quality in the right place at the right time "
... and ...
2. " at the lowest costs "
This problem involves the definition of a network configuration presenting an optimal structure through which the products will flow from their source points to their demand points, and determining what facilities should be used, how the facilities should be served, how many there should be, where they should be located, and which transport services should be used between them. Balancing capital costs, order processing costs, costs of holding stock buffers in stores, cost of non-serving of demand, transportation costs, customer service targets, dictate how the products flow through the network and which facilities, stores need to be used.
The general methods by which the alternative configurations can be evaluated on cost and efficiency is a planning problem, and not part of optimal reordering logistics (configuration and planning). The procedures and programs described hereafter, aim at finding optimal reordering for a fixed configuration.
In order to determine the optimal ordering conditions, quantities and methods, for a given stores configuration, it is very important to distinguish the different types of demand to be served, and different sources of supply.
DEMAND C1. Direct demanded customer order
C2. Customer order with planned material demand date in future
E1. Spare parts to repair breakdown
E2. Materials for planned production or installation
SOURCE Supplier
Manufacturer
The definition that demand should be served by "the right item in the requested quantity of the required quality in the right place at the right time, at the lowest costs" leads to a problem that has both spatial and temporal aspects. The spatial aspect refers to the location of the inventory such as warehouse, retail outlet, detail or sub store, or supplier kept depot. The temporal aspect is one of availability of the item through purchase order response time or maintenance of an inventory in stock near the customer or short production / assemblage response time.
If time is not critical, e.g. for planned material requirements (C2, E2) with a planned date far enough in the future to ensure that ordered material will be available in time.
If the time aspect is very important (C1, E1), stock can be placed as a buffer between the demand and the supplier, in order to serve the demand immediately from the stock.
Having a stock implies additional stock holding costs (storage, handling, and fixed costs), these are balanced by the immediately availability of the item. An additional factor by which the stock holding can become economic as compared to serving the demand by ordering, even if the time aspect is not important, is given by the ratio of number of demands served from stock, to the number of orders needed to replenish this stock. One purchase order may serve many demands, and only one inspection is required.
TO STOCK OR NOT TO STOCK
In general it is economical to serve the demands (C2, E2) by ordering, unless
• The delivery delay is very long or variable
• The item is inexpensive and the number of demands per year is large enough to ensure an economic balance of stock holding costs versus ordering costs
• The economical penalty of stock-out is very large.
However, to ensure that the demand plan date is met, it is recommended that the item is ordered with a desired delivery date sufficiently long before the demand plan date, and be kept in a depot until delivery on the demand date.
In general it is economical to serve demands (C1, E1) from stock, unless
• Delivery within service time is ensured by the supplier and reliable
• Costs of not servicing the demand are low
STOCK VALUE
One of the most important costs when keeping an item in the stock inventory, is caused by the possession of the item. The value of stocked items is not available to the company or making any profit, unless the item is served. The quantities hold in the inventory are therefore determined as a balance between service level, possession costs and order costs. The quantities of reordering and holding in stock are based on different criteria for customer consumption and spare parts.
C1/C2 Customer orders
Forecast based on consumption from stock statistics
E1. Spare parts to repair breakdown
A minimum level based on production failure cost when the item is not available
EXCEPTIONAL DEMAND
Serving infrequently demanded very large quantities from stock will lead to stock-outs and low service levels. To ensure a normal service level when serving these occasional very large demands, very high safety stock quantities will be needed. It is very economical to separate these exceptional demands from the normal demands served from stock, and serve these exceptional demands by a special order from the supplier, the so-called Direct-Out.
SUB STORES
Quicker serving with low handling costs can be achieved by placing sub-stores, local outlets or self-services stores near the production location, or location of material demand. The costs of inter-warehouse transfer are balanced by the lower handling and distribution costs and the ratio of one transfer to number of requests served by this transfer.
ORDER POLICIES
Items can be supplied to the store by means of different order methods or policies. The benefits of these different methods lies in the fact, that they lead to lower transport cost by bundling the order-lines for the same supplier or manufacturer, lower the stock value by just in time ordering of the required quantity of a single item, or improving the reliability by ordering on a agreed fixed date, which can be used by the manufacturer in his production schedule.
HISTORY
Keeping a supplier catalog and supply history, allows to actively chose among a large number of supplies and selecting supplies optimal meeting preset requirements
SUCCES FACTORS
The success of meeting the requirements of customer service can be measured by a number of critical success factors or key performance indicators: Customer service level is defined as the ratio of the number of fulfilled demands served in time and the total number of demands
Service level SL = fulfilled requests / total requests
Service level of Backorders or Requests that can not be served within the predefined time, leads to unsatisfied demands or Backorders. The time necessary to serve the backorder is determining the service level of the backorder.
BO service = average backorder delay
ABC analysis
The ABC analysis is used to differentiate items into a limited number of categories, by ranking them according to a given criterion such as number of customer orders, sales, profits, market share or competitiveness, or number of breakdowns when the item is used as spare part.
Usually a small number of items are contributing a high proportion of the sales volume.
This disproportionality between the percentage of items in inventory and the percentage of sales is sometimes referred to as the 80-20 principle, although rarely do exactly 20 percent of the items represents 80 percent of the sales. "A" items are typically the fast movers, "B" items the medium movers, and "C" items the slow movers.
To the standard ABC analysis for ranking 2 categories are added "N" and "D".
The category N presents the recently introduced items, which exist less then a year. The category D presents items with no or zero movement, or turnover for the last 12 months.
The standard used classification in categories by demand frequency or number of customer orders, and turnover value together with their default threshold values are denoted below:
A First 80 % of the cumulated value.
B Next 15 % of the cumulated value.
C Last 5 % of the cumulated value.
N Recently introduced, less then a year.
D Not moving, zero criterion value.
The threshold values for the categories may be changed in setup function INU01/1
After ranking, sample in groups (e.g. total criterion in first 1%, next 1%, etc) and calculate the cumulative distribution.
If all members are equal
one gets after ranking equal criterion values
first 80% = 80% criterion next 15% = 15% criterion last 5% = 5% criterion
If the members are NOT equal, one finds after ranking the first 80 % is already reached in the first 5% of all the members.
first 5% = 80% criterion next 15% = 15% criterion last 80% = 5% criterion
The ABC analysis can be used for a wide range of purposes: some examples are given below.
Warehouse operation efficiency
Physical grouping off items with a high issue frequency by ABC analysis by demand frequency in locations in the vicinity of the demand areas e.g. the counter in a hardware store, may facilitate and reduce the picking workload and lead to shorter average distances and picking times.
Counting efficiency and data accuracy
To increase the efficiency of the cycle counting procedure, A-category demand frequency items can be assigned a higher counting frequency.
ABC analysis reports
The careful manual control of each individual item is usually too cumbersome.
Grouping items in broad groups allows for effective and efficient collective analysis.
The overall control of the investment in inventories, the average service levels, can easily be visualised by summary reports over the ABC categories.
The ABC categories can be used managing the problem size. Since the A group dominates the other categories for the given ABC criterion, focusing attention on only items of this group will reduce effort while retaining accuracy in representing the problem.
The A and D categories of the sales turnover value highlight two extremes, the most profitable, and the least profitable non-moving items, while both groups usually only contain a relatively small number of the total number of items.
Combination of the ABC analysis for two or more criteria, can provide even more effective grouping. By presentation of multiple aspects in matrix form, very clear views can be obtained.
Inventory control order policy
By selectively applying inventory policies to the different ABC categories, inventory goals can be achieved with lower inventory levels or higher service levels, than with a single policy applied to all product classes.
The A category for of customer order frequency in combination with the C category for safety stock value highlights the opportunity where for a relatively small investment of additional money in safety stock may lead to a high service level of the group (A, C).
The setup function INU01/5 allows to assign weighting factors to influence the safety stock in the various ABC categories.
"A" customers - "A" demand
A combination of the A category customers with the A category of the item issues, focuses on who are the most important customers, and what was their most important demand.
Query on ABC
The ABC analysis on order frequency and amount on CUSTOMERS, ITEMS and SUPPLIERS can be used to select by query the particular category one is interested in. e.g. fast movers or non-moving items, or items with a high turnover